Puerto Rico files for biggest ever U.S. local government bankruptcy • Hacker News Board

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#101

Post by sandworm101 » Wed, May 03, 2017, 9:42 PM UTC

savanaly wrote: post #23

vkou wrote: post #10

Earlier quoted context omitted.

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't…

This isn't about a social norm. This isn't about non-payment of debts generally. This is about a very specific and narrow type of loan. The creditors here chose a risk. They could have insisted on security. They could have asked for collateral (ie the deeding over of a property right for a mortgage). They did not. They extended credit on nothing more than a promise and in full knowledge of bankruptcy laws. They also sold these debts onto other knowledgeable investors. The social norm at risk here is the idea that all debts should be treated equally, that we should force unsecured debts to be repaid as if they were secured. To equate credit card debt with mortgages and car loans, that's the really dangerous moral path.

We cannot force debtors to repay money in perpetuity. That's half way to indentured servitude, or worse. If someone has no hope of every paying off their debts, the logical thing to do is not bother trying. That is waste. And we long ago abandoned the idea of debtors prison. Puerto Rico cannot be jailed nor can it be forced to make payments forever as that would destroy their economy forever. The only reasonable thing is to eliminate the debts through the legal process.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#102

Post by ThrustVectoring » Wed, May 03, 2017, 9:42 PM UTC

dragonwriter wrote: post #59

ThrustVectoring wrote: post #31

Earlier quoted context omitted.

>Lots of people are leaving the island, which just compounds the problem (less revenue). This is one of the effects of Puerto Rico being subject to US minimum wages. Since it's illegal for large portions of the population to receive pay commensurate to the value they're able to produce, and it is legal to move to the US, guess what folks do?

> Since it's illegal for large portions of the population to receive pay commensurate to the value they're able to produce, and it is legal to move to the US, guess what folks do? If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living? They move to the States because the States are better able to attract businesses that will pay them what they are capab…

>If they can't produce enough value to justify minimum wages, why would they move to places with a higher cost of living?

Mopping a floor produces economic value because there's a difference in how much a dirty store sells versus a clean one. If all you can do is mop floors for this thought experiment, this difference in how much the store sells directly effects the economic value of your labor. In Puerto Rico, this difference is less than in the mainland US, which is why the value of their labor (and the natural price of it) is lower.

In other words, since the US is more intensely capitalized, there are more opportunities to provide $7.25/hr worth of value.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#103

Post by zzzzzzzza » Wed, May 03, 2017, 9:42 PM UTC

mjevans wrote: post #70

EternalData wrote: post #3

I feel like local governments are going to be the first to really be affected by significant pension overlays that are not properly accounted for -- a lot of pension funds assume rates of return that are historically farcical. I think the industry average used to be about 8%. "During the 20th Century, the Dow advanced from 66 to 11,497. This gain, though it appears huge, shrinks to 5.3% when compounded annually." htt…

The answer to pension problems is real socialism. Produce in bulk, provide in bulk, eliminate the waste and middle-person profit by providing as much of the pension as possible directly so that the allowance for other items can be of a much smaller serviceable size.

it's not clear from your comment what real socialism even means. You seem to be advocating for some sort of planned economy? (that's a horrible idea) Then whats this about allowance for other items?

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#104

Post by goneri » Wed, May 03, 2017, 9:43 PM UTC

ericd wrote: post #85

CJefferson wrote: post #32

Earlier quoted context omitted.

Limited companies go bankrupt all the time. Do we consider it an "ethical failure" when some VC funded company folds, leaving a whole bunch of people they owe money to with nothing?

A little bit, yeah. The leaders of those businesses made promises to people, and they failed to uphold them.

Promises only bind those who believe. Those pepole are paid to evaluate the risk.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#105

Post by MrFantastic » Wed, May 03, 2017, 9:44 PM UTC

dragandj wrote: post #84

vkou wrote: post #44

Earlier quoted context omitted.

We already live in that society. What do you think the millions of people working in finance do, if not try to quantify risk? Do you want to live in a society where you and your family can be sold into slavery if you fail to pay off your debts? Because that's the logical consequence of not allowing debts to be discharged from bankruptcy, regardless of your ability to pay. Being a money-lender shouldn't be a license t…

There are other models other than two extremes. For example, in (at least some) European countries there is not such thing as private person going bankrupt. However, of course that that person won't be sold to slavery. Simply, if you can not repay the loan, your property will be confiscated and sold to repay it. You can dodge that by not having any property on your name, of course, and most such people do that, but t…

In many European nations if you start a business and fail you will never get another chance.

The USA financial system that allow for bankruptcy is part of the reason that we are an entrepreneurial nation.

Failure is part of innovation.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#106

Post by pishpash » Wed, May 03, 2017, 9:44 PM UTC

dragandj wrote: post #84

vkou wrote: post #44

Earlier quoted context omitted.

We already live in that society. What do you think the millions of people working in finance do, if not try to quantify risk? Do you want to live in a society where you and your family can be sold into slavery if you fail to pay off your debts? Because that's the logical consequence of not allowing debts to be discharged from bankruptcy, regardless of your ability to pay. Being a money-lender shouldn't be a license t…

There are other models other than two extremes. For example, in (at least some) European countries there is not such thing as private person going bankrupt. However, of course that that person won't be sold to slavery. Simply, if you can not repay the loan, your property will be confiscated and sold to repay it. You can dodge that by not having any property on your name, of course, and most such people do that, but t…

That is a kind of slavery. Plus as a lender you still have to quantify that risk, so what does it buy you?

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#107

Post by InitialLastName » Wed, May 03, 2017, 9:44 PM UTC

altstar wrote: post #98

mjevans wrote: post #70

Earlier quoted context omitted.

The answer to pension problems is real socialism. Produce in bulk, provide in bulk, eliminate the waste and middle-person profit by providing as much of the pension as possible directly so that the allowance for other items can be of a much smaller serviceable size.

They have tried in Venezuela. Did not work.

Venezuela tried petro-socialism, backing their welfare state with a single resource that they happened to be swimming in. Price of that resource false -> no more monetary value -> money is worthless and welfare state fails.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#108

Post by ryandrake » Wed, May 03, 2017, 9:45 PM UTC

savanaly wrote: post #23

vkou wrote: post #10

Earlier quoted context omitted.

> We owe money to the creditors... and what you do with a debt is to you pay it off. That's not the case. Sometimes, you pay your debt off. Sometimes, you default, and file for bankruptcy. For lenders, it's the cost of doing business. If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. Lenders charge creditors a premium, because of the risk of default. It's as much on them to…

That's true in any individual case. But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly, won't it change the equilibrium for future generations of lenders and borrowers such that an inefficiently low amount of lending goes on? If everyone has the expectation that the lenders and borrowers will try their best to live up to the contract they made in good faith, wouldn't…

> But if we make it our social norm that bankruptcy is nothing to be ashamed of and to be taken lightly

I don't know about "taken lightly" but bankruptcy and defaulting on a debt should not be something to be "ashamed" of, for an individual, a company, or a government. Default is an option specifically written into every debt contract out there. There should be no more shame in choosing to default as there would be for choosing to exercise a stock option that causes your counterparty lose all his money. Lenders reap a huge premium for doing nothing but assuming the risk of default. If there was zero risk there should be zero premium.

No surprise that it's mainly bankers pushing the "it's immoral to default" line.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#109

Post by MrFantastic » Wed, May 03, 2017, 9:46 PM UTC

SEJeff wrote: post #65

knob wrote: post #5

I have lived all my life in Puerto Rico, and as you can imagine, this issue is quite controversial. We owe money to the creditors... and what you do with a debt is to you pay it off. Yet the amount is so staggering, that I wonder if it's actually possible. As is typical, decisions by politicians placed us in this situation. Decade after decade, 4-year term after 4-year term, the government has spent money it does not…

What are your thoughts on Puerto Rico becoming the 51st State of the USA? I ask this as a native (mainland) born American who always thought this would be an interesting approach to solve the problem of finances in PR. Is it even well supported or is it a crazy idea?

The GOP will not allow this because it would tip the scales towards the Dems.

Re: Puerto Rico files for biggest ever U.S. local government bankruptcy

#110

Post by dragandj » Wed, May 03, 2017, 9:47 PM UTC

vkou wrote: post #47

wyager wrote: post #29

Earlier quoted context omitted.

> If they don't want to deal with the possibility of bankruptcy, they shouldn't lend out money. This only works if lenders are private groups and if they have the ability to set the terms of the loan (or deny it altogether). Neither of these generally apply at the government level.

Nobody forces lenders to buy up PR bonds, or accept the terms at which they are issued.

EU institutions force them by controlling the policy. Sure, if you have a few millions to invest, you can go elsewhere, but if you have billions, you are most usually working with other people's or institutional money, and are fairly limited by various laws and policies, and large part of that money practically has to go in some sort of government bonds. Then, you can not just disregard those AAA ratings at return * 2 because you'll have trouble explaining that you do not trust the ratings...